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A cable lobby group that represents more than 900 small and medium-size providers is angry that Charter Communications will be competing against other cable companies.

Cable providers usually avoid each other's territory, choosing not to "overbuild" in cities and towns where other cable networks already exist. But Charter agreed to bring some competition to the cable market in exchange for the Federal Communications Commission's approval of its purchase of Time Warner Cable and Bright House Networks. Specifically, Charter will deploy high-speed broadband to at least 2 million residential and small business locations, of which at least 1 million must be in areas served by at least one other provider.

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Naturally, cable companies aren't happy about facing competition. The American Cable Association (ACA), the lobby for smaller providers, said yesterday that it is "troubled" by the FCC's overbuilding requirement on Charter. But instead of just arguing that competition will hurt small cable companies, the ACA also claims that competition will be bad for customers.

"The requirement on Charter to overbuild competitors will harm consumers in two ways," ACA CEO Matthew Polka said. "First, it will harm Charter's customers by preventing Charter from investing its resources most efficiently, such as by upgrading its networks to higher speeds. Second, it will harm customers of local, small providers when these customers are satisfied with their existing service."

Charter will likely choose to meet the overbuild requirement by competing against smaller companies with fewer resources, driving them out of the market, accelerating a shift to a Comcast/Charter nationwide duopoly, Polka argued.

It's certainly possible that competition will take customers away from some cable companies, but the companies serving territories where Charter will overbuild have an advantage: they've already built out their networks and are serving customers. If they keep offering good deals or offer better deals, they can convince customers to stay with them. Switching cable providers is often a hassle that customers avoid unless a competitor offers a significantly better price or service.

FCC: Competition lowers prices

Head-to-head competition between network operators often brings lower prices and faster speeds to consumers, as can be seen in areas where Google Fiber and municipal broadband networks compete against incumbents. The FCC's order on the merger conditions argued that "Overbuilding in areas served by only one firm providing high-speed [Internet] will spur competition, leading to lower prices and greater choice for consumers." FCC Chairman Tom Wheeler last year urged cable companies to compete against each other, but, in the absence of merger conditions, that doesn't seem likely to happen in any significant way.

Charter's deployment to 2 million new locations will have to provide at least 60Mbps download speeds. To satisfy the overbuilding requirements, Charter must build to 1 million locations outside of its current territory where any other provider offers at least 25Mbps. The overbuild requirement can be satisfied by competing against non-cable Internet providers, such as companies delivering 25Mbps or higher speeds over fiber.

There is one exception in the overbuild condition: Charter can satisfy part of the requirement by buying smaller providers and upgrading them to 60Mbps. Charter could count up to 250,000 locations from acquisitions toward the overbuilding requirement of 1 million new locations, as long as each acquired company competes against a high-speed provider and lacks the resources to upgrade speeds on its own.

Despite the FCC approving the merger, there was disagreement among commissioners about the build-out conditions. Republican Commissioner Ajit Pai agrees with the ACA that the overbuilding requirement will hurt small providers. "[U]nless Charter chooses to exclusively overbuild areas served by Comcast, which I find highly unlikely, Charter’s increased broadband market share will come at the expense of smaller competitors," Pai wrote.

"According to the Commission’s most recent statistics, 34 million people still lack access to download speeds of at least 25Mbps," Clyburn wrote. "This condition makes a small, but meaningful dent in our effort to bring broadband to all Americans. As the soon-to-be, second largest provider of broadband Internet access, with service to approximately one-fifth of households, I believe that New Charter should be required to build-out to more households with a specific focus on reaching those homes deemed ‘unserved.’"

Charter should be able to complete the purchases of Time Warner Cable and Bright House Networks shortly, as the company is just waiting for a vote by California regulators that could happen tomorrow.

Disclosure: Bright House is owned by the Advance/Newhouse Partnership, which is part of Advance Publications. Advance Publications owns Condé Nast, which owns Ars Technica. Advance/Newhouse would own 13 percent of Charter after the proposed transactions.

Promoted Comments

It's really too bad the 1 million subscriber overbuild requirement wasn't specifically aimed at Comcast. There's no competition if a giant moves in on top of a tiny incumbent. Forcing Charter and Comcast to overlap by a million more subscribers would show just how low those two could offer services when there's real competition (see also all Google Fiber build-outs). Those prices could be used to establish that both companies are acting as monopolies in markets without competition leading to antitrust action.